The New Tammany Hall

Public sector unions have become a labor aristocracy--and they are bankrupting states and municipalities.

Daniel DiSalvo and Fred Siegel

October 12, 2009, Vol. 15, No. 04

Ever since the 1972 Democratic convention nominated George McGovern over the objections of the AFL-CIO, the standard wisdom has been that organized labor's power in American politics has declined dramatically. The failure of the current Democrat-dominated Congress to pass labor's highest legislative priority, the Employee Free Choice Act ("card check"), is taken as indicative of unions' political incapacity. But the picture looks very different on the state and local level where public sector employee unions have gone from one victory to another. Indeed, they are the one group, besides Goldman Sachs executives, that's done well during the current Great Recession. Public sector unions have become political powerhouses in New York, New Jersey, Washington, California, and a host of other states. They have become so powerful as to threaten the Madisonian system set up to constrain any one faction from overwhelming the public interest.

Once upon a time public sector workers received less pay than their private sector counterparts in return for better benefits and greater job security. But that bargain has been breached. Public sector wages have more than caught up, while the differential between public and private sector benefits has increased so much that public sector work, particularly for the unskilled, is greatly coveted. To protect such benefits, the unions have tenaciously opposed Senator Max Baucus's plan to tax expensive health insurance plans to finance an extension of coverage. Supporters of public sector union power have developed a rationale for the government employees' gold-plated perks. The argument is that public employees are the vanguard of the working class. As such, the benefits they achieve will eventually have to be matched by private sector employers. As Carla Katz, the leader of New Jersey's Communications Workers of America, explained to Paul Mulshine of the Newark Star-Ledger, reformers embrace "the progressive theory that unless you create a substantial wage and benefits package that reflects good jobs and the ability to have a middle-class life style, there will be a perpetual race to the bottom."

Katz not only represents thousands of state employees, she is also the richly rewarded former girlfriend of New Jersey governor Jon Corzine. Katz's influence on Corzine became clear in 2006 when the impassioned governor spoke to a Trenton rally of roughly 10,000 public workers and shouted out: "We will fight for a fair contract." Corzine was of course management in that situation, not labor. But with the power of the public sector unions to drive election outcomes, they now sit on both sides of the bargaining table. Unlike private sector unions, the sheer number of workers represented is not the linchpin of their influence. Private sector unions have a natural adversary in the owners of the companies with whom they negotiate. But public sector unions have no such natural counterweight. They are a classic case of "client politics," where an interest group's concentrated efforts to secure rewards impose diffused costs on the mass of unorganized taxpayers. Also unlike private sector unions, those in the public sector can achieve influence on both sides of the bargaining table by making campaign contributions and organizing get-out-the-vote drives to elect politicians who then control the negotiations over their pay, benefits, and work rules. The result is a nefarious cycle: Politicians agree to generous government worker contracts; those workers then pay higher union dues a portion of which are funneled back into those same politicians' campaign war chests. It is a cycle that has driven California and New York to the edge of bankruptcy.

Consider what happened in Washington State. After helping Democrats win full control of the legislature in 2002, the state affiliate of the Association of Federal, State, County, and Municipal Employees (AFSCME) and other unions persuaded lawmakers to lift the collective bargaining restrictions. Within three years the number of union members had doubled. With more state employees paying dues, the amount of union dollars flowing into the coffers of Democrats running in state elections also doubled. A prime beneficiary of such union generosity was Christine Gregoire, who became governor in 2004 after one of the closest elections in the state's history. (AFSCME gave $250,000 to the state Democratic party to help pay for the recount that handed her the election by 129 votes). Once in office, Gregoire negotiated contracts with the unions that resulted in double-digit salary increases, some exceeding 25 percent, for thousands of state employees. In 2007, J. Vander Stoep, an adviser to Republican Dino Rossi, Gregoire's 2004 opponent, prophetically remarked that the unions' arrangement with the Democrats was "a perfect machine to generate millions of dollars for her reelection. . . . They are building something that conceivably can never be undone--at taxpayer expense." In their 2008 rematch, Rossi lost again to Gregoire, this time by 194,614 votes.

Public sector unions with political influence can negotiate detailed work rules in which they largely exempt themselves from accountability in return for providing political support for their nominal managers. In New York City, Mayor Michael Bloomberg and the United Federation of Teachers (UFT) have created a cartel to advance their own interests at the expense of the citizens and students. The teacher's contract is over 200 pages of small print. Reminiscent of the 12,000 United Auto Workers (UAW) who were paid not to work in the heyday of the UAW, nearly 800 Gotham "rubber room" teachers who have problems on the job are being paid not to work. The UFT has also negotiated with Bloomberg, mistakenly called an education reformer, a reduction in the number of days they must work to prepare for classes before school begins in September at the same time as their salary increases have been running at better than twice the rate of inflation.

But the teachers are not the only politically powerful labor force in New York, the nation's most-unionized state where 69 percent of public sector workers belong to collective bargaining units. In the nominally private health care sector, employees depend heavily on government programs, principally Medicare and Medicaid, for their livelihood. In the 1970s and 1980s, the local 1199 Drug, Hospital and Health Care Employees Union fought a running battle with New York's largely state and federally funded voluntary hospitals. Under the brilliant leadership of Dennis Rivera, 1199 built a top-notch political operation, and with the hospitals, which were barred from political activity, formed a partnership to maximize the flow of government revenue. The union-hospital alliance has been so successful in aligning itself with politicians, Democrat and Republican alike, that not only has 1199 been largely untouched by the downturn, but New York spends as much on Medicaid as California and Texas combined. And come boom or bust, hospital and health care employment in the state keeps growing. Rivera, who merged his local with the SEIU (Service Employees International Union), has now brought his political acumen to Washington as the SEIU's point-man on health care reform.

The combined power of the teachers and health care workers has made the New York state legislature a wholly owned subsidiary of the public sector unions. The law mandates that all new legislation be evaluated for its fiscal impact. In recent years those calculations were performed by an actuary named Jonathan Schwartz. In 2008, when Schwartz found that a piece of bipartisan legislation allowing city workers to retire early with full pension benefits would impose no new costs, the New York Times blew the whistle. Schwartz, who had been fired from a city job, worked not only for the state assembly but also, it turned out, for District Council 37 of the SEIU. When asked which other unions he had worked for, he replied, "How many unions are there?" His client list included the teachers, firefighters, detectives, correction officers, and bridge and tunnel officers. Not surprisingly New York State has the highest per-employee pension costs in the country.

Prior to World War II, a New York State Supreme Court justice neatly summarized the prevailing attitude toward public sector unions: "To tolerate or recognize any combination of Civil Service employees of the government as a labor organization or union is not only incompatible with the spirit of democracy but inconsistent with the spirit of democracy and inconsistent with every principle upon which our Government is founded." Laws permitting collective bargaining for public employees were virtually nonexistent. Even labor-friendly economists thought organizing most public sector employees was illegitimate. AFL-CIO president George Meany believed it was "impossible to bargain collectively with the government."

What produced the enormous expansion of public sector unions? In a case of unintended consequences, government unionism ironically developed from actions taken by those hostile to it. Many of the icons of the labor-left like New York's great mayor Fiorello LaGuardia and President Franklin Roosevelt were adamantly opposed to public sector unions. LaGuardia, who pledged to make New York a "one hundred percent [private sector] union" town, had a civic vision of public employees as the people's workers, exemplars of the common good. Famed for dropping in unexpectedly on city offices and dressing down slackers, LaGuardia explained that he did "not want any of the pinochle club atmosphere to take hold" in his city government. "The right to strike against the government," he insisted, "is not and cannot be recognized."

In 1935, Roosevelt signed the Wagner Act, the first peacetime effort to support the growth of private sector unions. Its aim in the words of its sponsor, New York senator Robert Wagner, was "encouraging the practice and procedure of collective bargaining." But like his close ally LaGuardia, Roosevelt drew a definite line when it came to government workers. "Meticulous attention," the president insisted, "should be paid to the special relations and obligations of public servants to the public itself and to the Government. . . . The process of collective bargaining, as usually understood, cannot be transplanted into the public service." Both men feared that liberalism would be compromised by the unavoidably self-serving nature of public sector unionism.

But the mayor and the president opened the door to just what they opposed. In the bad old days of Tammany Hall, which had fought both LaGuardia and Roosevelt, the average tenure of a cop or teacher or garbage collector was five years. But with the rise of civil service reform backed by both men in the 1930s, public employees both in New York and the federal government began to gain lifetime security. Civil service reform, it turned out, was the precondition for unionization because it gave workers a long-term interest in their jobs and facilitated their capacity to express collective concerns. In 1958, New York mayor Robert Wagner, son of the senator behind the 1935 federal act, issued an executive order generally known as "the little Wagner Act." It gave city employees bargaining rights and provided their unions with exclusive representation. The city was soon turning over the dues from its workers to the union. Those dues soon provided political action funds to support union-backed candidates.

Running for reelection in 1961, Wagner faced a Democratic party revolt. The party's five borough chiefs were supporting his opponent, and Wagner made the unions the basis of his winning campaign. It was a turning point. Looking back in the wake of New York's mid-1970s fiscal crisis, Alex Rose, the head of the once powerful (and now defunct) New York Liberal party and a former labor leader, concluded that "the little Wagner Act" had proven a dreadful "mistake." Rose, who had also led the private sector clothing workers, explained that public sector "workers are not extracting a share of the profits but rather a share of taxes." Ultimately, he noted, his workers would be among those "footing the bill."

Ten weeks after Wagner's victory, President John F. Kennedy, who had been elected by the narrowest of margins in 1960, decided to mobilize public sector workers as a new source of political support. In mid-January 1962, he issued Executive Order 10988 giving federal workers the right to organize, though not to collectively bargain. Kennedy's action and Wagner's victory set off a wave of local union activity across the nation's major cities.

In states with laws favorable to unionism, public sector organizing has flourished; in states without such laws, it has not. If there is a specific point from which to mark the beginning of the current looming fiscal crisis in many blue states, it would be the wave of local strikes by public employees that were set in motion by Kennedy's executive order. His strategy succeeded beyond his wildest expectations. Like entitlement programs, the expansion of public sector unionism produced a self-generating dynamic for continual expansion. Public sector unions would occasionally experience temporary setbacks--as in the New York fiscal crisis of 1975--but they had the political clout to claw back any concessions made under duress.

During the Reagan years, the growth in local and state jobs was double the rate of population growth. In the downturn of the early 1990s, the New York Times warned that the states faced a "fiscal calamity." In 2002, during the next serious downturn, the National Governors Association insisted that the "states face the most dire fiscal situation since World War II." But in each case the growth of government and public sector pay packages merely stalled. It resumed as soon as the economy recovered.

There is broad agreement among economists that public sector unions' political power increases government spending. As reported in the New York Times, public-sector wages and benefits over the past decade have grown twice as fast as those in the average private-sector. An Empire Center for New York State Policy study found that in 2006 state and local government employees in New York were paid higher average salaries in eight out of ten regions of the state. If one excludes jobs in finance in New York City and the Southern Tier, private sector employees earned slightly less than government ones statewide.

The downturn has been very tough on private sector workers. But the public sector, particularly when it comes to pensions for uniformed workers, has been a different matter. In New York City, where public sector union benefits have grown twice as fast as those in the private sector since 2000, firefighters may retire after 20 years at half pay. Pension benefits for a new retiree averaged just under $73,000 (all exempt from state and local taxes). Many also collect an annual $12,000 "Christmas bonus." To top it off, they receive a health insurance policy that is worth about $10,000 annually. New York City is also paying benefits to 10,000 retired police officers under 50 years of age.

Such cases abound. According to the Boston Globe, 225 of the 2,338 Massachusetts state police officers made more than Governor Deval Patrick's $140,535 annual salary in 2006. Four state troopers received more than $200,000, and 123 others were paid more than $150,000. The Chicago Sun-Times reports that in suburban Chicago, there are school administrators--a unionized profession--who are making over $400,000. California teachers are represented by one of the country's most powerful teachers' unions and earn 25 percent more than the national average. Forbes has reported that there are California prison guards making $300,000 a year.

While the wage parity between public and private sector workers is largely unchanged since 2002, public sector benefits are a different matter. For every $1-an-hour pay increase, noted Dennis Cauchon in USA Today, public employees have gotten $1.17 in new benefits. Private workers have gotten just .58 cents in benefits for every $1 raise. This gap worries left-liberal labor economist Barry Bluestone. The price of state and local public services increased by 41 percent nationally between 2000 and 2008. Private services only increased by 27 percent. The benefit growth has continued unabated into the Great Recession, and Bluestone says the gap will inevitably produce a backlash.

Like banks, but with even less self-control, state governments make long-term promises in boom times while depending on the short-term flow of revenues. But when the boom ends, the benefits that have been ratcheted up have to be paid for out of a declining private sector economy. Barring a sharp recovery, state and local government tax-funded pension contributions in New York are likely to triple over the next five years in order to pay out the pension benefits guaranteed by the state constitution. (This is equally true in Illinois.) California's public pension fund liability has already topped $200 billion, and in cities such as Oakland, Vallejo, and Rio Vista bankruptcy looms.

In the states and cities where government workers' unions are strong, they have formed alliances with nonprofit advocacy groups such as ACORN and foundations committed to greater government involvement in the economy and society. The Manhattan Institute's Steven Malanga argues that this constellation of forces is in effect a new Tammany Hall. It is, says Seymour Lachman, a former New York state senator who now heads a center for government reform at Wagner College, "the ward heeler system of Boss Tweed's Tammany Hall wrapped in some kind of progressive disguise." The old Tammany, however, was subject to electoral defeats. The new Tammanies have proved self-perpetuating. In California, Governor Schwarzenegger's ill-organized effort to roll back public sector union power in 2005 led to the muscleman's first defeat, then his political evisceration, and now the Golden State's fiscal humiliation. New York City and State are on a similar course. Across the country the new political machine has mostly been aligned with the Democratic party. Some individual unions, however, such as California's prison guards and New York's hospital workers, have been protected and advanced by Republicans. Still others play a pragmatic balance-of-power game, forging short-lived marriages of convenience with either political party.

Public sector unions are beginning to strike out on their own, too. If the recent primary elections in New York are any indication, it is only a matter of time before, using the vehicle of the Working Families party (WFP), they take control of New York City government. New York allows third parties on the ballot, and the Working Families party--organized in 1998 as an alliance between labor unions and ACORN--cross-endorses allies in the Democratic party. Yet the WFP is thriving while New York's Democrats atrophy. In last week's New York City primaries, WFP candidates for city council won easily, as did the party's candidates for the city's second and third highest offices: comptroller and public advocate. Those are the best platforms from which to make a run for mayor of New York City when Bloomberg finally gives up his throne.

Public sector unions bring to the fore what James Madison called "the violence of faction" and its threat to the "permanent and aggregate interests of the community." This can't be blamed on the unions; they're advancing their members' interests. The fault lies with politicians, particularly those governors and mayors who have been willing to sabotage the public interest to smooth the path to their own reelections.

In the absence of tough-minded reform leaders who will take on the public sector unions, the fiscal future of states and localities is bleak.

Fred Siegel is a visiting professor at St. Francis College and a contributing editor to the Manhattan Institute's City Journal. Dan DiSalvo is a professor at City College of New York.